The number of creative capital sources is endless, so rather than attempt to cover every trick of the trade, following are some diverse examples to provide you with a sense of how businesses manufacture capital.

Generating internal cash flow

The ultimate goal of business owners and managers is to understand, generate, and manage internal cash flow. To be quite honest, the best way to get capital is to look internally and manage business operations more efficiently to produce additional capital. Positive internal cash flow is both readily available and logistically much easier to secure.

However, you need to keep in mind that positive internal cash flow must be managed and invested appropriately in the best interests of the company and its shareholders.

Leveraging unsecured creditors

Beyond generating additional cash from internal management efforts, a business is often afforded the opportunity to utilize creative forms of unsecured financing from vendors, partners, and customers. Following are three such examples:

Require customers to prepay 20 percent of their order as a requirement to start the production and future delivery process. In addition, terms such as 20 percent down, 30 percent upon half completion, and the remainder due upon delivery can also be utilized. Companies that produce and sell customized products often use this strategy because active alternative markets generally aren’t present for “one of a kind” items.

Ask key product suppliers to grant extended terms from 30 days to 90 days during certain seasonal periods (for example, to support higher sales during the holiday season). After the determined period, terms are brought back to 30 days when the cash flow from the increased sales catches up.

Retailers often use this strategy during the holiday season as inventory levels are built up from October through November (with cash receipts realized in December and then used to repay the extended credit granted from its suppliers).

Work with a downstream customer to obtain funding to develop a new product or technology that can greatly improve the customer’s future performance. For example, a hardware technology company may need to ensure that software is available for use with its new products. Hence, a capital infusion into the software supplier to develop the technology for which it receives a royalty from future sales may be warranted.

Going after government aid, gifts, and grants

Governments, universities, and nonprofit organizations have resources available in the form of grants, low-interest-rate loans, incentive credits, gifts, and so on intended to be used for special interests or purposes. The general idea is to provide this capital to organizations that will use it in the best interest of the general public.

For instance, biotechnology companies often secure research grants for work being completed on disease detection, prevention, and possible cures. Educational organizations may receive grants that help retrain a displaced group of workers or untrained work force.

Partnering up

One way to secure capital is to partner with an individual or business that’s in a stronger financial position. For example, a software company was in the process of developing a new fraud-protection system for use in the banking system.

Not only did the development of the system need to be capitalized, but the initial marketplace launch also required capital to ensure that the end customers, mainly banks, could review, test, evaluate, and implement the systems. Internally, the software company didn’t have enough capital to finance this project, so it acquired a sister company (related through partial common ownership) that was producing strong internal cash flows.

The software company issued its equity in exchange for all the assets of the target company (which in effect was the future cash-flow stream). This trade provided the software company with sufficient cash flow to fund system development and market it to the banks.

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